Fin24

Blow to banks as indebted get a break

2011-03-31 11:58

Johannesburg – A new ruling by the Supreme Court of Appeal (SCA) is good news for the indebted, who will be able to get out of debt faster, but holds a frightening prospect for the banks.

The SCA considered the in duplum (double the amount) rule. It means that once in default you never have to pay back more than double the unpaid capital borrowed – even if more interest has been running up.

The in duplum rule has been in SA common law for many years, but didn’t really protect clients.

Say you borrowed R100 and didn’t pay the debt. With interests and charges, the R100 soon ballooned to R200.

If you pay off R50, the banks would classify it as a payment to settle part of the interest, and then charge interest and charges on the remaining R150 until it reached R200 again.

That would happen every time you made a payment which did not settle the capital amount.

This meant you would struggle for years to get out of debt. But in 2007, the new National Credit Act (NCA) attempted to place a real cap on debts.

It imposed a fixed limit on the total amount of interest and charges on unpaid debt, so that you will only ever owe double the unpaid capital amount at the time of default.

So if you borrowed R100, and interest and fees amounted to R300 but you had paid R50 of the capital – you would only owe R100 – double the unpaid capital of R50.

More interest and charges cannot be added as you make payments.

In 2009, following opposition from the banks, the National Credit Regulator (NCR) got the high court to confirm that a ceiling is in place, but the banks took the case to the SCA. They lost.
 
In its recent ruling, the SCA found that the NCA differs from the common law rule in that it is not only limited to interest but also includes initiation fee, service fee, credit insurance, default administration charges and collection costs.

“The court said this section of the law helped to prevent unreasonable over-indebtedness of the consumer,” says NCR manager of strategy and education, Peter Setou.
 
This is very good news for consumers, who will now get out of debt a lot faster, says Luke Hirst, managing director of the debt counseling group DebtBusters.
 
It is expected to hurt credit providers who charge high interest rates of above 40%, as those debts will reach in duplum without breaking a sweat.
 
But the large banks also face a scary scenario following the ruling, says Hirst.

The interest and fees on home loans could quickly reach double the initial capital amount.  Take the example of a home loan client, particularly one with a very expensive property, who falls into default by only R10 a month.

If the bank doesn’t pick up the shortfall, the client can years later claim that he is in default and only needs to pay back double the capital amount.

This could potentially leave the bank with substantial losses.

Bad news for consumers

Another recent court ruling, however, holds bad news for consumers. The case focused on which credit agreements can be excluded from the debt review.

Currently, if you already received a summons about a debt – that debt cannot form part of your debt review. It means that your debt counsellor can’t negotiate to lower the monthly payments of that debt.

“When consumers become over-indebted they can approach a debt counsellor in order for their debt to be rearranged,” explains Setou.
  “Normally all the consumer’s credit agreements would fall under the debt restructuring process. This means that the credit provider cannot enforce the agreement and take the consumer to court (issue a summons) or attach their assets to settle outstanding debt while they are under debt review.”

But under the NCA, an exception to this is when the credit provider has already taken steps to enforce a credit agreement. That credit agreement is excluded from the debt review process.
 
“In practical terms this means the credit provider can then take further legal action against the consumer to enforce the agreement,” he says.

The banks contended that as soon as a Section 129 notice is issued to a consumer, which warns them that legal action may follow unless they take action, this debt is excluded from the debt review process.
 
“The NCR argued that the notice to a consumer is only a notification and not a step to enforce the credit agreement, because, this will have the effect that if a consumer was even one month in default, their credit provider could issue them with a Section 129 Notice and they would not be able to apply for debt restructuring to help them pay back their debts,” said Setou.
 
The SCA agreed with the banks’ approach and interpretation of the Act saying that as soon as a consumer received a Section 129 Notice in respect of a specific agreement, that agreement is excluded from debt review.

So far, most banks have been quite lenient on including debts under debt review where a section 129 has been issued, as long as clients are making a decent monthly payment.

Hopefully that will not change, says Hirst.

The latest NCR figures show that the number of South Africans who have fallen behind on repaying debts have increased to more than 8.6m – or 46.5% of credit-active consumers.

- Fin24

Comments
  • GT - 2011-03-31 12:11

    Excellent news! A lesson to the blood suckers.

      Roanokee - 2011-03-31 12:35

      Indeed! The only difference between a bank and the mafia is that the mafia can be trusted.

      Sickly - 2011-03-31 13:39

      Where's the accountability? Don't borrow if you can't afford so tired of people over extending themselves and then making it someone else's problem. Take responsibility for your actions!

      Brendon - 2011-03-31 23:17

      The whole banking cartel is a fraud! Educate yourself on what money really is, on how money is made from debt, and debt is made from debt. Every single country with a reserve bank is in huge debt, its designed this way. Its moderm slavery, your whole lives from the day you went to school has been designed so you will be a good worker and perpetuate this system. The top elite will get richer while you get poorer, theres no escape. Its time you wake up, the world cannot take it anymore. There are alternatives. Watch Zeitgeist: Addendum, research a resource based economy, research how the banking system really works. Save yourselves.

      Zion - 2011-04-01 06:22

      It is finally good to see that the consumer is eventually getting some power instead of being a total slave to the credit providers and the banks.

      mlh@24.com - 2011-04-01 10:13

      @sickly - Unfortunately one does'nt ever think the company one has worked for for 17years would go into liquidation.... having absolutely NO income as a result means this gives one a breather because, believe me, when one battles to put food on the table, or cant pay school fees, the last thing needed is pressure for debts incurred while earning a salary.

      RL - 2011-04-01 14:06

      @sickly you are undoubtedly incapable of understanding the content of this article. the ruling doesnt abandon accountability it merely places a cap on the interest banks can charge. banks have plundered consumers as efficiently as the government for decades and it is high time its stopped. next on the list should be these scheister vehicle dealers ...

      Verbatim - 2011-04-02 05:59

      @sickly - so when my wife and myslef both lost our jobs when our former employer killed himself and left us in the cold, i was supposed to move out in the street with my one child and let my wife have our second one in a gutter.

  • CharlSkeptic - 2011-03-31 12:33

    The section 129 notice works as follows - the bank sends such a notice, inviting the consumer to approach a debt counselor, within a certain timeframe. If the consumer does this, timeously, then that credit agreement WILL fall under debt review. Later on, if it appears that the DC didnt do his work per the deadlines prescribed by the NCA, or the consumer fails to make payments, only THEN can the debt review be terminated in terms of section 86 NCA and normal legal action then proceed

      Daferman - 2011-03-31 12:48

      @Charl you were correct, but not anymore, the court has changed the interpretation of this law......

      Wendy - 2011-03-31 13:22

      Be very careful who you chose for debt counselor. Bad eggs out there. Been under LEGAL debt review since 2008 and WESBANK still came to repo my car after paying what DC said I must pay. Act is interpretted differently by diff parties as it is still new.

      CharlSkeptic - 2011-03-31 14:17

      In that case, the provisions of section 129 must change, because there is no point in inviting a consumer to approach a debt counselor and continue with legal action at the same time. It's contradictory in its worst form

  • Gabrielle Brookstein - 2011-03-31 12:36

    Is this rule only limited to banks or other service providers eg telkom?

  • Daferman - 2011-03-31 12:43

    "So if you borrowed R100, and interest and fees amounted to R300 but you had paid R50 of the capital – you would only owe R100 – double the unpaid capital of R50. " This is a misleading and generally incorrect calculation. Also you seem to be advocating not paying your debt so you can "get away" with In Duplum, believe me, it's never that simple... Also, people forget to read what they sign when they take out credit agreements with banks...But at least things will be more transparent soon.

  • DeonL - 2011-03-31 12:50

    Banks are not so bad, they are a business after all and can not work for next to nothing. Very few people can live comfortable without any debt, but it should be your main financial goal in life.

      MC2010 - 2011-04-01 10:57

      Deon, I agree. The lender/banks will remain king as long as the consumer spends more than he/she earns. All that debt review does is it tries to force consumers to spend within their limits. Debt problems are NOT caused by banks - it is caused by over spending.

  • Currie_Mafia - 2011-03-31 12:56

    What about the maximum interest a lender is allowed to charge ? Is there any law governing this ?

      Tigra - 2011-03-31 13:53

      Yes there is... It's called the National Credit Act...

      CharlSkeptic - 2011-03-31 14:14

      Yes. There are fixed interest rates, applicable to various types of credit agreements. contact nca.org.za or look up the regulations to the NCA.

  • William Nettmann - 2011-03-31 13:05

    The lenders are going to have to ensure that the total amount repayable under a loan agreement is substantially less than double the capital, or else the borrower will be tempted to default to save money. The way to do that is to reduce either the interest rate or the term of the loan, or both. I guess the banks will opt for the term of the loan, so look forward to paying your house off in about 15 years. Not sure what interest rates are at present, but @ 8.5% the total repayments over 15 years would be 1.77 times the capital, for example. Over 30 years, the repayments are 2.77 times the capital, providing a strong motivation to a borrower to default.

  • Wendy - 2011-03-31 13:17

    An 85 year old man won a case against ABSA for wreckless credit. He had a small pension, bank gave him credit for R 800 000.00 for bond. Obviously he could not pay. But he won the case :-)

      snackpaz - 2011-03-31 13:45

      thank you for this lovely, informative, and constructive anecdote. your contribution to this forum means a lot.

      CharlSkeptic - 2011-03-31 14:20

      The obvious cases like the one you quoted, will result in a ruling of reckless lending by a FSP. Most borderline cases of reckless credit dont make it to court, mainly because it costs money to sue the banks & lenders

      RL - 2011-04-01 14:08

      ha ha oh come on snackerz, it's friday give her a break ... thanks wendy

      Nico - 2011-04-01 15:50

      @snackpaz... do i see some sarcastic comment here?

  • Wizz - 2011-03-31 13:18

    There are many types of creditors - some far more unscrupulous than banks. I hope this applies to ALL creditors.

      Daferman - 2011-03-31 14:56

      All registered credit providers, loan sharks will still bash your knees in....

      gizzy - 2011-03-31 15:09

      Yes, it applies to ALL creditors.

      DeonL - 2011-03-31 15:18

      Some people are under the misconception that private doctors are credit providers, we are not.

  • Phineas - 2011-03-31 13:29

    Buy with cash only and put your money under your mattress or in a hole.

      Bratt - 2011-04-01 10:04

      not all of us are tenderpreneurs.

  • m00t - 2011-03-31 13:30

    i'm confused so my home is say R400 000 is the total repayment never exceed R800 000, currently is waaaay over that

  • Meanleader - 2011-03-31 13:34

    There is honour among thieves , but not among banks . The consumer will pay for this one way or another .... mark my words !!!!

  • James - 2011-03-31 13:46

    Obviously wrong example of interpretation. I agree with Daferman - if the capital is R 100 and interest and cost R 300 and you pay R 50, the outstanding amount will be R 150.00 - not "double the unpaid capital of R 50" - i.e. R 100. But interest can then not be added to the R 150. That what the ruling says.

  • news - 2011-03-31 14:11

    does this apply to credit cards as well

      CharlSkeptic - 2011-03-31 15:36

      more than any other type of credit, apart from maybe cash loans on the corner! LOL

  • supamike - 2011-03-31 14:29

    Reality.....the tougher the legislation the more difficult it will become to get credit. Then the cry will be that the banks are being too harsh on how and to whom they lend. Yet, when they do lend, legislation is put in place to protect a defaulter. Doesn't make sense to me!?!

      DeonL - 2011-03-31 15:21

      Yes, the Gov. is far to protective of the customer and the poor, neglecting the middle man and small business owner. It took me 1 month to get a bond recently, before it took only 48 hours.

      Zion - 2011-04-01 06:32

      Despite the poor position this may place the bank in it is still forced to provide credit to more customers for its own survival. One instinctively things they will come up with a foefie to lessen or bypass the new credit act.

  • Stan - 2011-03-31 14:36

    So if you borrowed R100, and interest and fees amounted to R300 but you had paid R50 of the capital – you would only owe R100 – double the unpaid capital of R50 The above example is not so easy to comprehend. How does one pay 50% of capital and still fall behind if interest has been paid as well?

  • news - 2011-03-31 14:45

    Great The banks deserve what they getting. They have been raping the consumers for decades

  • Danita - 2011-03-31 15:34

    I have been under debt review since 2008 but according to my debt councellor it was never agreed in court, so I have been paying religiously and now all of a sudden they are only taking it to court now. Wesbank wanted to come and take my vehicle away a few weeks ago and now I am totally beside myself that I have thought I have been safe but infact I am not??? Does anyone know of the ombudsman for debt councellors or how I can report this just to cover myself.

  • JR7800 - 2011-03-31 15:51

    So very typical of our times. The laws can now legally make you a criminal. What is the incentive for a person paying all his accounts on time, NOTHING... The only thing is you are going to pay more than the person who recklessly go out and get as much credit as he can, with no consequence. Just live, the good live on other people’s money and once they come for payment throw your hands in the air and say I cant pay. Just think if you are a responsible person and pay your house loan as per agreement (which you willfully agreed to and accepted to pay) and you borrowed say R1 000 000 over 30 years @ 9%., you will pay back a total of R2 896 641 (Total of 1 896 641 interest). Now if you are a reckless consumer and default on your first payment due and decide to pay them back over say 50 years and you apply the in duplum rule the bank can only charge you in total R 2 000 000 (Your R1 000 000 borrowed with a limit of R1 000 000 interest and costs).Now tell me what incentive there is for the honest person to keep on paying his accounts due on time, and secondly for the financial providers to take the risk in borrowing someone money if he cant charge you the interest for the term you had his money to which both of you willingly agreed. Bring back the days where you can be locked up for stealing, sorry I mean borrowing someone else’s money and not paying it back as per agreed contrackt…..

      DW - 2011-04-01 08:55

      The difference is that the NCA prevents anyone going out and recklessly getting as much credit as he can with no consequence. When last did you try to get credit? If you have a bad credit record no-one will lend you money. They also check how much credit you have, your income and expenses and may not give you more than you can afford. Before the NCA came into effect all the banks, stores etc were handing out credit cards and giveing credit to anyone who asked and it is now these people who are battling to pay that debt. It is no longer as easy to get credit as it was before, which is a good thing.

      24.com - 2011-04-02 12:11

      we went with debtbusters in end 2008. we paid the new restructured amount until end 2010. in that time we had still not been to the magistrates court! the date set is for june 2011 ... beginning 2010 fnb was able to summons us for judgement because nothing was legally resolved yet!! hence us now paying a much higher installment after myself, having to make an arrangement with the bank. now we can hardly put food on the table. circumstances leading to our indebtedness was beyond our control in the forms of retrenchments, more than once, and the market being slow when we tried (and still trying) to sell our property. the figures keep climbing, they paid their lawyers from our bond account, making our amount even higher .... fnb. how can we help you?

  • TheArmsDealer - 2011-03-31 18:33

    About time the banks of South Africa is regulated. March 2005 I bought a car. May 2005 I was retrenched and defaulted on two payments. The bank sent someone to my house and took the car back. They then auctioned the car for the same price that I bought it for and sold on new finance plus interest to another person. At the same time they force me to pay off the full outstanding amount of the car including the original interest and additional interest until settled. 10 years later I am still paying for this car. At the same time when I bought the car I had my first car. In may I had only two payments left and the car wold have been mine. This car they also took after all the interest and the car was so to say paid for by me and sold the car at market value with interest again. Thus this is indeed excellent news that hopefully prevents the corrupted banks from doing the same to another person as what has happened to me.

      Martin - 2011-04-01 07:25

      Armsdealer you didn't pay your debt' you have no right to complain. Plus, you are not truthful or perhaps just stupid, if you bought the car in 2005, you have not spent ten years paying it off.

  • Sicelo - 2011-03-31 23:03

    Can someone talk real/easy Zulu, sotho,English, Xhosa,tswana,pedi,venda or sign language maybe not english for me to understand how am i protected from my house being taken, (say I am retrenched and it takes +/- 6 months to get a new job) prevent my car/house being repossesed (there is always what people call small print) I owe R600,000.00 on my car/house i pay regularly on my loans does my loan increase or decrease because i get call every 25th to pay because i missed payments (times are tough) what is my recourse? Or else I am missing something!!! question how much does my loan to? in money terms eish!!

      BRONZE - 2011-04-01 09:12

      Sicelo I'm only understand half of what is said in the article and it seems they made an error in some of their calculations. All I know is if you are out of a job you have to inform all the people you owe and negotiate lower payments. That's what I did when I lost my job for 5months and they all agreed to the lower terms. But as you know you still may not cover all the monthly instalments with your UIF, some debts will just have to wait. Prioritise car and house. House because you need a roof over your head and car because you need it when job hunting and some jobs require you to have a car anyway, even part time ones. Don't sell your car unless you are sure the money you get will settle your loan at the bank otherwise you'll be stuck with no car and STILL have to do monthly payments towards your loan. As for what the ariticle says, I think it means that your debt with interest must never exceed double what you owed. PLEASE CORRECT ME IF I'M WRONG. My question then is: does this apply to all debts no matter which year you got into the debt? My bubble has been burst too many times by someone telling me a new benefitial rule applies only to debt you entered into, say, in 2010. This leaves out too many people still in a dwang. Can someone clarify that for me please. And also: does this doubling thing include lawyer fees? i.e. debt never to double including interest plus lawyer fees? Sorry to hijack your post Sicelo.

  • HoHum - 2011-04-01 08:29

    No-one forces a consumer to borrow from a bank. If you cannot afford it do not buy it and if you do not understand what you are signing either don't sign or get some advice

  • JR7800 - 2011-04-01 08:41

    So very typical of our times. The laws can now legally make you a criminal. What is the incentive for a person paying all his accounts on time, NOTHING... The only thing is you are going to pay more than the person who recklessly go out and get as much credit as he can, with no consequence. Just live, the good live on other people’s money and once they come for payment throw your hands in the air and say I cant pay. Just think if you are a responsible person and pay your house loan as per agreement (which you willfully agreed to and accepted to pay) and you borrowed say R1 000 000 over 30 years @ 9%., you will pay back a total of R2 896 641 (Total of 1 896 641 interest). Now if you are a reckless consumer and default on your first payment due and decide to pay them back over say 50 years and you apply the in duplum rule the bank can only charge you in total R 2 000 000 (Your R1 000 000 borrowed with a limit of R1 000 000 interest and costs),remember the in duplum is only valid once you default. Now tell me what incentive there is for the honest person to keep on paying his accounts due on time, and secondly for the financial providers to take the risk in borrowing someone money if he cant charge you the interest for the term you had his money to which both of you willingly agreed. Bring back the days where you can be locked up for stealing, sorry I mean borrowing someone else’s money and not paying it back as per agreed contract…..

  • robertjhb - 2011-04-01 09:10

    Pity The NCA has no influence over attorneys who may charge 15.5% interest, VAT and no limit on commission and handling fees on monies owed to them or their clients.

      Tjaart - 2011-04-01 11:59

      Get your facts right before making such misinformed comments brother... You're wasting space and everybody elses time.

  • robertjhb - 2011-04-01 09:18

    Pity The NCA has no influence over attorneys who may charge 15.5% interest, VAT and no limit on commission and handling fees on monies owed to them or their clients.

  • Frank - 2011-04-01 10:28

    In the global economy this will be good news in the coming months and years. But what about those that have a problem now! Many people just cant find work. Because of BEE many white south africans simple struggle to get a job, they cannot repay those debts.

  • Bronwin Page - 2011-04-01 10:31

    the banks are pathetic making loads of money from everyone who has any dealing with them. You bond account your biggest debt because they add interest dailey how pathetic so one can never settle the debt. I don't see why they are complaining. As they say the wheel turns and now.....

      Aelf - 2011-04-01 11:07

      Your bond account is compound interest. The better way of settling debt. Interest gets calculated on a monthly basis. So every month your interest is calculated on a lower outstanding balance. The more you pay back the more you save. On normal HP kinda loans i.e. car, loan. Interest gets calculated at the start. Its a lot more. Do your homework.

      Kdub - 2011-04-01 14:50

      the banks are not pathetic. the banks are businesses, and interest is how they make money. If you can't afford to pay the bank, rather rent and stay debt free. simple really.

  • HowardX - 2011-04-01 12:27

    So does this also apply to SARS?

  • robertjhb - 2011-04-01 13:08

    Pity NCA has no influence over attorneys who can charge 15/5% interest, VAT, no limit on commission and service charges, for them or their clients.

  • Rustum X - 2011-04-01 13:46

    Awesome. Profit should be honest profit, not scamming interest accumulation. If I borrow, R100 i should pay back R100 and if lending me the R100 costs the bank R200 then obviously they are too broke to be a damn bank.

      Kdub - 2011-04-01 14:51

      and the bank would then make money how?

  • BigAl - 2011-04-01 16:39

    About time they took it further and stopped the bloodsuckers. If you buy say a television on credit it looks like this. Television R3000 – credit charge for 36 months R3000 + R50 service charge per month, that totals to R7800. So the profit on the credit is R4800 + profit on the television say R1000 that makes a total profit of R5800 – even if you consider that you did get the credit and the use of the television it is still an obscene amount of profit. I see in the UK a few months ago televisions are in some cases half the SA price and you can get 36 months interest free credit with no service (or administration) costs. Remember in the UK they earn ten times the wages of SA. The same story on cars and even food is cheaper. Not sure if they will delete this comment if I add the following but will try. Check out (if you have internet) www.argos.co.uk and www.tesco.com Then go on Autotrader.co.uk and see how much we are ripped off on cars.

  • goslow - 2011-04-01 16:44

    Helena Wasserman you are talking rubbish by stating this is a blow for banks. The consumer still pays back double the amount loaned. how is this bad for the banks. the media should stop being afraid of the banks and wright the truth.

  • goslow - 2011-04-01 16:46

    the author is talking sht. the consumer still has to pay back double the amount loaned. how is this bad for the banks!!

  • goslow - 2011-04-01 16:49

    my statement are being moderated because i am criticizing the author what happened with free speech.

  • Johny - 2011-04-01 20:26

    I don't understand why interest and capital is not shared equally right from the beginning. Why do you first have to pay back the interest , then the capital amount?

  • pietpompies2 - 2011-04-01 21:05

    UP YOURS Capitalist .... (fill in the dots!)

  • OzzyInSA - 2011-04-02 00:13

    @ Sickly, yes you are right, so many people lie on their credit applications then cry when they get stuck. Someone has to do someting about bank charges. Nowhere else in the world do you get charged for depositing cash into an account but here. No wonder the unbanked stuff their money in a mattress. Consider the comaparison, my cheque/current account in Australia (ANZ) I get charge a $5 (R35) service fee, with unlimited transactions across all channels (mobile, telephone, internet banking, ATM) and do not get charged for deposits or withdrawls. COmpare that to any bank here, including Capitec! Also, SASwitch here that directs all ATM transactions charge a fortune per transaction. Something needs to be done there. Finally, nowhere else in the world does the lending rate sit 3.5% above the repo rate. All teh banks do it. Surely this is collusion. Why is something not done about it?

  • loose_cannon - 2011-04-02 11:53

    Just a silly question. If you pay your bond off at the minimum requirements worked out over 20 years, you are paying back over three times the amount. No duplum rule there

  • kamin - 2011-04-05 12:35

    hi, guys i was wondering if you can help me.I had a default on my credit card for the amount of R59585 and up to now I've paid about R61550 and my balance is still R48000 which i need to pay. so according to the new rulling did i pay the amount I had to pay? Thanks

  • Fatima - 2011-04-08 23:43

    I am paying R6000 for my bond and the bank wants R9700, so i get msn saying they going to auction my house, pleae could someone help me understand this problam..is not that i am not paying towards my bond, is that i can not afford more at this stage. i have booked 4 times a meeting with there lawers and they just don't come and see us, i send faxes and emails and i got no response from the bank...can someone help plz..i have no were to live if the do this to me...thank you

  • yvette.meyer2 - 2011-04-13 11:34

    I wonder if the same principal applies to Home Owner Associations - we fell into arrears with our levies and have since been trying to get them up to date however to date we owe R12 000 odd on levies and R29 000 on arrear interest, collection and administration fees - does anyone know who we can speak to about this? Much appreicate

  • Francis - 2011-05-25 21:12

    My son had a stroke when he was sixteen, I had enormous medical bills to fork-out, the medical aid was exhausted within two weeks. I owed doctors, specialists and the hospital an enormour amount. I was unable to pay my bond, car payments and other accounts. I went to all I owed, doctors included and said I would pay what I could every month. It took ten years to pay everything and to get back to normal. At no time did anyone send me a final notice or take me to court. I think as long as you are prepared to pay what you can, then the banks, etc., are reasonable.

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